Mayor Jerry Sanders released his first budget for cash-strapped San Diego yesterday, one that shields the nation's seventh-largest city from layoffs, service cuts and various other predictions of pain that marked the mayoral race just last year.

JOHN GASTALDO / Union-Tribune

Mayor Jerry Sander's budget plan spares the city's libraries, which have seen several years of service cuts. At the downtown library, aide Lozelen Gonzalez filed magazines.

Sanders recommended a fiscal 2007 budget of $3 billion, up 26 percent from this year's $2.4 billion budget, based largely on rosier revenue projections and an iffy borrowing plan to reduce a massive pension deficit.

The city's general fund, which pays for daily operating costs, would increase 60 percent from $865 million this year to $1.3 billion.

Jay Goldstone, Sanders' chief financial officer, said framing the increase in percentage terms is “misleading” because the budget includes $374 million of one-time anticipated bond revenue and previously unbudgeted personnel costs.

Sanders will present his proposal to the City Council on Monday, beginning a two-month period of public hearings and politicking. The budget starts July 1.

The mayor called his plan “extremely fiscally conservative” and added, “I believe that the risks of my proposal are manageable, but the council will need to make their own judgment.”

Council members praised elements of the mayor's plan yesterday, especially his intent to increase city reserves, address some deferred maintenance and hold the line in several areas ravaged by cuts in recent years.

Union president Joan Raymond expressed concern, however, about Sanders' repeated insistence that 500 jobs should be cut in a year when he also wants to keep 600 positions vacant, while businessman Steve Francis criticized Sanders for waiting.

San Diego's budget

Mayor Jerry Sanders is proposing a $3 billion budget for fiscal 2007. It's up from this year's $2.4 billion budget, and he attributes that to higher revenue projections and plans to borrow money to reduce the pension fund debt.

The highlights include:

General fund: $1.39 billion, which contains $374 million in pension bond financing that has yet to be secured

Police: $360.7 million, up 7 percent

Fire-Rescue: $169.7 million, up 6 percent

Parks and Recreation: $83.4 million, up 4 percent

Libraries: $38.6 million, up 5 percent

“I support what he's trying to do,” said Francis, who ran for mayor last year. “The thing that's missing is being more aggressive from the get-go.”

Sanders defeated Councilwoman Donna Frye in a November runoff election to finish the term of Mayor Dick Murphy, who had resigned amid a mounting fiscal crisis. Sanders campaigned on promises to cut expenses, oppose tax increases and draft a budget that accurately projected the city's costs and revenues.

In his budget proposal, he is including expenses that were not reflected in past spending plans.

For years, city officials underestimated what would be spent on public safety overtime. Previous budgets also excluded the cost of several hundred employees known as “supplemental workers.”

Richard Rider, a longtime taxpayer advocate who ran for mayor last year, said the steep increases in Sanders' revenue projections, compared with last year's lower estimates, don't worry him.

“There's no conspiracy or budget chicanery going on this year,” Rider said. “But it does indicate to me the magnitude of what we've been dealing with in the past, in terms of the dishonesty of the budget.”

Almost since his November election, Sanders has said the three years of his administration will be “rebuilding years” meant to restore the city's health by stopping unsound budget practices and honoring long-term legal obligations.

Ewell called his plan “a rebuilding budget for San Diego . . . that continues our effort to incrementally eliminate past practices of adopting budgets that are structurally deficient.”

He also said the budget “allows us to begin taking the necessary steps down the painful road designed to ultimately return the city to fiscal stability.”

Despite Ewell's assurances, San Diego's practices of underestimating public safety overtime costs and excluding supplemental workers from the budget continued.

In an e-mail, Ewell said former City Manger Michael Uberuaga disclosed the existence of these “unique positions” during the budget process in 2001, and that the city has gradually been eliminating them.

Key dates

The San Diego City Council will begin holding meetings next week on Mayor Jerry Sanders' budget proposal for the 2007 fiscal year, which begins July 1. Unless otherwise noted, the meetings will be on the 12th floor of the City Administration Building, 202 C St.

Monday: Sanders will present his budget to the City Council at its 2 p.m. meeting.

Wednesday: The council's Budget Committee will hold a public hearing from 9 a.m. to noon.

April 26: The council will take public comment from 6 to 9 p.m. at the Stephen and Mary Birch North Park Theatre, 2891 University Ave.

May 3: The council will review and take public comments from 9 a.m. to noon and from 2 to 6 p.m. on budgets for the Parks and Recreation, Library and Community and Economic Development departments.

May 4: The council will review and take public comments from 9 a.m. to noon and from 2 to 6 p.m. on the budgets for public safety, programs and special promotions funded through hotel room tax revenue, and other departments.

May 5: The council will discuss unfinished budget matters from 9 a.m. to noon.

May 15: The council will deliberate on the budget at its 2 p.m. meeting.

May 24: The Budget Committee and City Council will meet jointly on changes to the mayor's budget from 9 a.m. to noon.

May 30: The council will vote on the budget.

May 31-June 7: The mayor can veto or modify any line item in the budget that the council has approved.

June 12: If the mayor alters the budget, the council will vote on whether to override it.

He added, “Every new administration comes in blaming the prior one. This is certainly not new, simply politics.”

Sanders inherited a retirement system that has a $1.4 billion deficit created largely by a decade of intentional underfunding by city councils that also boosted retiree benefits beyond what San Diego could afford each year.

In January 2004, the revelation that city officials had cloaked the problem in earlier bond disclosures prompted several outside investigations into the city's financial practices and possible securities fraud and corruption.

The city's fiscal and legal woes have since dragged down its credit rating and kept San Diego from issuing an annual audit since an error-riddled 2002 audit and out of the bond market because it faces excessive interest rates. The pinch has forced the city to halt new capital projects, from library and fire station construction to mandated water and sewer upgrades.

For three years, everything from street repairs to tree trimming has slowed dramatically and the council has slashed service levels and cut positions to balance a budget that includes rising worker and retiree costs.

Salaries were frozen for fiscal 2006 and 2007, but city workers outside of public safety are set to receive 4 percent raises in fiscal 2008.

With a cushion from the salary savings, Sanders plans to add $22 million to general fund reserves, bringing them to $55.4 million. He also wants to spend $20 million to reduce a deferred maintenance backlog last estimated at $372.5 million three years ago.

But the mayor's intentions hinge entirely on the city's ability to issue overdue audits from 2003, 2004 and 2005 and have its credit rating restored to a level that would make pension obligation bonds a wise investment.

Sanders said his borrowing plan is reasonable, but some consider it imprudent.

He acknowledged the criticism yesterday, saying the council and the public “should fully be aware of the risks associated with my proposal and, accordingly, of the risks of doing nothing.”

To critics who say the reshuffled debt mortgages “our children's future,” he said, “We mortgaged our children's future in 1996 and 2002 when the pension benefits were agreed to and we didn't have the revenue to support those obligations. What we're talking about now is how we pay for those decisions.”

If the city cannot issue pension obligation bonds, Sanders would use money earmarked for borrowing costs, the increase in city reserves and half his budgeted deferred maintenance projects to cover required pension expenses.

The city must pump about $162 million into the pension system next year, a portion of which Sanders hopes to pay using the borrowed sum.

The mayor has highlighted portions of his budget since Monday, when he laid out his 20-year borrowing proposal predicated on interest rates staying low.

Since then, Sanders has outlined his spending plans for the Police and Fire-Rescue departments, whose budgets were boosted in part to reflect true overtime costs, and for the Park and Recreation and Library departments, which were spared cuts after enduring them in recent years.

Councilman Jim Madaffer lauded Sanders for a “realistic approach” to city finances that did not include raising taxes or filing for bankruptcy, as other mayoral candidates suggested.

“I'm seeing it as a good thing,” she said. “There are no further cuts, thank God.”

Frye and City Attorney Michael Aguirre, who have publicly supported Sanders since his election until staying mum on his budget this week, declined to comment through aides. Aguirre plans to prepare a legal opinion on the mayor's borrowing plan in the next couple of weeks, a spokeswoman said.

Raymond, president of Local 127 of the American Federation of State, County and Municipal Employees, which represents the city's blue-collar workers, said Sanders should look at trimming city bureaucracy before targeting lower-level employees if he ultimately eliminates 500 city jobs.

Sanders' budget includes 11,363 positions, 600 of which are vacant. This year, the city budgeted 10,857 positions. The new budget includes 429 “supplemental workers” who had been kept off the books.

During his campaign, Sanders constantly promised to trim the city payroll by seeking resignation letters from every manager and then letting 100 managers go and by cutting 10 percent of the city's work force, excluding public safety jobs, if labor leaders didn't agree to further concessions at the bargaining table.

Sanders defended his new, more methodical approach, saying, “It's going to be the same outcome.”

“It would be easy to do the political thing and just cut 500 positions, but it doesn't make sense until we know where we cut from,” he said. “Some of this I want to take out of the political realm and put in the good business realm.”